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TMI Blog1971 (8) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... ). The questions of law referred are : " (1) Whether, on the facts and in the circumstances of the case, there was a gift within the meaning of section 2(xxiv)(b) and section 2(xii) of the Gift-tax Act ? (2) Whether, on the facts and in the circumstances of the case, the transaction in question was exempt under section 5(1)(xiv) of the Gift-tax Act? " The assessee was carrying on a business in rice and paddy in the name and style of K. Ganapathi Moothan. He owned two rice mills and had also taken on lease another rice mill. On April 14, 1962, he converted this proprietary concern into a partnership taking his three major sons, G. Kannan, G. Krishnankutty and G. Raghavan, as partners by a deed dated April 14, 1962. The capital of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a gift as defined in section 2(xii) of the Act, read with sections 2(xxiv)(b) and 2(xxiv)(d). The Appellate Assistant Commissioner also negatived the contention of the assessee that the gift was exempt under section 5(1)(xiv) since he found that in a case where a portion of the business itself was gifted it could not be said that the gift was made in the course of carrying on the business. However, he allowed a reduction in the valuation of the goodwill, which was determined at Rs. 28,830 as against Rs. 76,968 as estimated by the Gift-tax Officer. Against this order the assessee filed an appeal to the Appellate Tribunal ; and the Tribunal held that there was no gift in view of the fact that the recitals in the partnership deed would show th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer of property means : " 2 (xxiv) ' transfer of property' means any disposition, conveyance, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes.. . . . (b) the grant or creation of any lease, mortgage, charge, easement, licence, power, partnership or interest in property ; . . . . (d) any transaction entered into by any person with intent thereby to diminish directly or indirectly the value of his own property and to increase the value of the property of any other person. " The assessee was carrying on the business in rice milling and paddy as also in grocery before he entered into the partnership. He had a goodwill in respect of that busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into the partnership to carry on the same business there was a transfer of the goodwill ; and there is no reason to hold why the transfer did not amount to a gift. The Appellate Tribunal held that there was consideration for the transfer of the goodwill in that the three partners contributed Rs. 10,000 each ; and, therefore, the transfer would not amount to a gift. This is not correct. The contribution made by the partners was towards the capital of the partnership. The assessee specifically transferred the two rice mills in favour of the partnership by the partnership deed and received consideration for the same from the partnership, but ploughed it back in the form of his contribution to the capital of the firm. But, so far as the goodw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be charged under this Act in respect of gifts made by any person- (xiv) in the course of carrying on a business, profession or vocation, to the extent to which the gift is proved to the satisfaction of the Gift-tax Officer to have been made bona fide for the purpose of such business, profession or vocation. " We had occasion to consider the scope of this section in I.T.R. No. 14 of 1969 . In Commissioner of Gift-tax v. Dr. George Kuruvilla the Supreme Court observed: " We are unable to agree with the views so expressed. The donor is exempt under section 5(1)(xiv) from liability to pay tax only if the gift is in the course of carrying on a business, profession or vocation and is made bona fide for the purpose of such business, profes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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